SINGAPORE (June 6): DBS Vickers Securities is maintaining its “buy” call on Capitaland with a target price of $4.33.
This is based on a 10% discount to the group’s revalued net asset value (RNAV) following the announcement of its asset reconstitution strategy in China.
To recap, the property group previously announced its divestment of Innov Tower at Shanghai’s Xuhui District for $316 million. The proceeds will be re-invested in the group’s newly-completed Guozheng Center.
(See also: Capitaland in acquisition and divestment of Shanghai office buildings valued at $851 mil)
In a Tuesday report, DBS analysts Derek Tan and Rachel Tan highlights the group’s latest move as the hallmark of its portfolio reconstitution strategy: realising value from more mature assets such as Innov Tower, and redeploying the proceeds to properties with further upside potential when the property is fully leased.
The group anticipates locking in further potential capital gain when prices stabilise in the medium term.
As such, the analysts expect overall gains of approximately $85 million from the latest deal to provide a further boost to Capitaland’s earnings for FY17F, and push it nearer to its targeted ROE of 8%.
Assuming full occupancy at rent of RMB6 per day, DBS estimates entry yield for the property to be 4.3%, with a potential to hit closer to 5% in the medium-term. This is on the back of assumptions of a strengthening rental outlook.
Guozheng Center’s occupancy rate is 23% as at end-April, with active interest in the remaining space.
“We expect further momentum in terms of Capitaland’s capital deployment in the key cities of China and Singapore, which we believe provides fundamental support to the persistent buoyancy of the share price,” the analysts conclude.
As at 10.27am, shares of Capitaland are trading flat at $3.60.
